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Most retirees fail to have an income plan

Among retirees who are withdrawing money from their retirement accounts, about half of them are doing it without a strategy in place, according to a new survey. That doesn’t bode well for their long-term retirement success.

Fifty-two percent of retirees surveyed said they’re pulling money out of their retirement accounts simply “as the need arises,” according to the telephone survey of 1,206 adults aged 35 to 75, conducted for PNC, a financial-services firm.

“It’s an unfortunate fact that a lot of people don’t prepare for retirement and they find themselves in a situation without this plan in place,” said Joe Jennings, investment director for PNC Wealth Management in Baltimore, Md.

The danger is running out of money later, when you’re much older and least able to rectify the situation. Perhaps unsurprisingly, about half of the retirees surveyed said they’re worried about exactly that — running out of money — and 63% are concerned that Social Security or pensions won’t cover their retirement expenses.

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Also unsurprising: Those who are concerned about outliving their savings have less money. The survey found that their investable assets total $225,000 on average, compared with the $411,000 possessed by the more optimistic retirees.

Spend less, plan more

There is one straightforward way to improve your outlook, no matter what your age: Cut expenses. Among the 53% of retirees who said running out of money is a fear, 59% said they are spending less and 41% said they’re budgeting more carefully.

While 35% of retirees said they’re spending about what they expected to spend in retirement, another 31% had no specific expectations — another sign that people are entering retirement with no clear sense of their finances.

Note that this is a small survey and, while the margin of error for the overall sample is +/- 3 percentage points, it rises to +/- 6 percentage points for the subgroup of retirees. Still, the findings point to the fact that some retirees entered retirement without a plan, and are trying to adjust on the go.

People should start thinking about retirement long before they retire, Jennings said.

“Ideally, what we would recommend is if you know that retirement is coming down the road in the not-too-distant future, let’s work on a plan to project what your income is going to be, what your expenses are going to be, and then start following that model today, even though you’re not retired yet, just so you know how it feels and whether it’s going to work for you,” Jennings said.

In other words, while you’re still working, figure out what your retirement income is likely to be, and then try living on that, while you’re still working.

“It’s a test run,” he said. “If there are going to be adjustments to be made we want to make them before retirement occurs rather than after retirement occurs and you may have less flexibility.”

How to create retirement income

So, what are your options for creating income from your retirement savings? There’s no one right way for everybody. The best strategy for you will depend on your specific financial situation, including the tax implications of where your savings are sitting (e.g. a pre-tax IRA or an after-tax Roth IRA), how long you expect to live, whether you’re hoping to leave money to heirs, and other considerations.

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